Fully Diluted vs. Treasury Method in a private company

Hi there -

I understand how we compute the fully diluted vs. treasury method price per share for a public company (assuming repurchase of shares with the proceeds of the exercice of vested and in-the-money options).

However, in the context of a private company, how would that work? See an example below.

EBITDA = $10m Multiple = 10x Enterprise Value = $100m Net Debt = $50m Equity Value = $50m

Shares outstanding = 100 Options vested and outstanding = 20 Strike Price = $250,000

So let's assume the company is being sold to an investor for $50,000,000. What would the the proceeds paid to the shareholders and the ones coming from the exercice of the options?

My first guess is the following:

The Company will receive proceeds for the exercise of the strike : 20 * $250,000 = $5,000,000 The total number of shares will grow from 100 to 120 The price per share is therefore = ($50,000,000 + $5,000,000) / (100+20) = $458,333

Shareholders will hence receive = 100 shares * $458,333 = $45,833,333 Option holders will receive = 20 options (now shares) * $458,333 = $9,166,667 minus the strike of $5,000,000, i.e. $4,166,667

Do you think the above maths are correct? Treasury Method Price per share would be $458,333?

Thanks !!

1 Comments
 

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